The Congressional Budget Office (CBO) expects a large effect from the recently passed Big Beautiful Bill. Signed into law by former President Donald Trump on July 4, this new legislation is projected to add at least $3.4 trillion to federal deficits over the next ten years. This new legislation locks in the tax cuts from Trump’s first term, expiring in 2025. It gives a nod towards equity by creating several new targeted tax breaks aimed at lower and middle income earners.
This is a huge deal, because the bill makes an important shift. It increases the cap on state and local tax write-offs for nearly all households from $10,000 to $40,000. This cap is reduced for higher-income earners. The bill provides new deductions for certain types of overtime pay, tip income, and auto-loan interest. That would be a huge win for millions of taxpayers from all walks of life.
Interestingly, the bill includes a temporary age-based tax break targeted just to taxpayers age 65 and older. This demographic may appreciate the provisions the most as they pay for their student loans and other financial obligations.
Individual taxpayers will find different effects on their after-tax income, depending on their income level. Someone making $30,000 a year will get a tax cut of about $752. This change amounts to a 2.9% increase in their net pay. A single parent with two kids earning $52,000 would get a $1,861 tax cut. That’s a net savings of $107 per month, or a 3.8% raise to their take-home pay.
Higher earners will see significant benefits. A person making $75,000 will see an average tax cut of $3,378. This wage increase will effectively raise their pay by 5.6%. For a married couple with two kids and an income of $85,000, that would result in a $2,474 tax cut. This increase corresponds to a 3.3% increase in their disposable income. Even families with very high earnings can still gain. For example, a married family of three making $200,000 will get an average tax cut of $8,487, boosting their net pay by 5.3%.
Additional calculations reveal that people earning less than $17,735 should expect an increase in their take-home pay of 2.6%. Earners between $73,906 and $130,661 will receive an even larger 6.3% increase.
This new legislation would be a remarkable step toward tackling unsustainable deficit spending, especially given that the national debt now exceeds $36 trillion. Since the start of 2020, our national debt has grown by over half, having added more than $12 trillion since then. Beyond fiscal responsibility, Trump’s Big Beautiful Bill has implications for long-term economic sustainability literally built into its design.